1. 13 Best Life Insurance Companies for Doctors in 2019
  2. Physician Life Insurance | 2019 Ultimate Guide

The Ultimate Guide to Physician Life Insurance in 2019

Life insurance is a necessary part of every doctor's financial plan --- regardless of medical speciality or career stage.

It protects everything you've worked so hard to build. It will also provide for your loved ones if an unexpected tragedy strikes.

With this is in mind, it's crucial that doctors get started looking for life insurance coverage early on in practice. If you already have a policy, it's important to review it from time-to-time to ensure it meets your needs.

No matter what your situation is, one thing is for certain --- our ultimate guide will walk you through everything you ever (or never) wanted to know about physician life insurance.

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What would happen if you happen to be one of those few who die before your full life expectancy?

According to the Life Insurance and Market Research Association (LIMRA), 35 percent of households would feel adverse financial impact within one month if a primary wage-earner died.

Not only is the statistic alarming, but it also underscores the exact reason why everyone needs life insurance coverage.

What is life insurance?

A life insurance policy is a contract with an insurance company. The policy’s owner pays the company a regular payment, called premium. In exchange, the company will provide a payment if the insured individual dies while the policy is still active.

The payment goes to the person, people or organization named as the recipient(s) in the contract. This payment, called a death benefit, is generally tax-free to the recipients, known as beneficiaries.

People who buy life insurance generally do so to replace income that would be lost due to an unexpected death. It helps the survivors:

  • Pay bills.
  • Repay debts.
  • Cover funeral expenses.

Why you need life insurance

According to the Social Security Administration, a 30-year-old man has only a 1.71 percent chance of dying within 10 years. At 35, the odds increase to 2.13 percent. By age 40, you have a 3.07 percent chance of dying within 10 years.

For women, the odds of dying within 10 years are 0.92 percent at 30. They increase to 1.32 percent at age 35 and 1.99 percent at 40.

These low odds often make buying life insurance a low priority. But as a physician, you know the unexpected can happen. An otherwise healthy person has a sudden heart attack. Cancer strikes an unsuspecting victim. A typical drive home is interrupted by a fatal car accident.

Yet there’s a major disconnect between what people need and what they think they need when it comes to life insurance.

According to LIMRA, among individuals with life insurance, only one in five say they do not have enough.

However, LIMRA’s Life Insurance Needs Model estimates that 48 percent of households have an average life insurance coverage gap of $200,000.

Insured households have, on average, enough life insurance to replace their income for about three years if they die. That’s according to the 2016 Trends in Life Insurance Ownership study from LIMRA. Three years is much lower than what the industry recommends.

When should you buy life insurance?

The sooner you buy life insurance, the easier and more affordable it is to obtain. Regardless of age, you should strongly consider life insurance if:

  • You have people who depend on your income.
  • You have a mortgage and other debts.
  • You own or co-own a medical practice.

Physicians who are married and/or have children likely need life insurance. Without your income, your loved ones will likely need an influx of cash to maintain their lifestyle and pay bills.  You can minimize the negative financial impact of death by investing in an individual term life insurance policy.

Some people neglect the need for insurance because they have a spouse with a successful career. They assume that spouse can live comfortably on their own.

But chances are your combined lifestyle is based on both of your incomes. If your’s is lost:

  • What will happen to your significant other?
  • Can he or she afford the mortgage on your house on one income?
  • What about funeral and estate settlement costs?
Also, keep in mind that a widowed spouse may need significant time off work to grieve. Life insurance benefits can help a surviving spouse replace the lost income they incur while taking time off work.

Children will need more than you might realize

Physicians with children typically do not need to be convinced of the need for life insurance. But they may underestimate how much is needed.

Basic living expenses like food and clothing will only increase as they get older. The amount of your life insurance should reflect this.

Not only that, but you may also want to ensure your life insurance can help pay for college. To do that you need to factor in the likely increases in tuition costs.

Help your beneficiaries pay off debts

Some people mistakenly believe debts are retired or forgiven when a person dies. This is rarely the case. Life insurance proceeds are an ideal way to help your heirs cover the remaining balances on your debts.

Typically, your debt becomes the responsibility of your estate following your death. And your estate will automatically pass to your surviving spouse. If you’re unmarried, the executor of your estate will be in charge of settling your debts.

Any loans in which there was a co-signer must be repaid by that individual. If you still have a mortgage, a joint owner or the person who inherits the house will be responsible for making the loan payments. If the house is sold, the mortgage balance will have to be repaid by the sale proceeds.

Car loans can be repaid by selling the car and using the cash to repay the balance, or repaying it from the estate proceeds. An inheritor of the vehicle can also decide to continue the payment schedule. If payments stop, the lender can repossess the car.

One type of loan that is forgiven at death is a federal student loan. Private student loans, on the other hand, generally will have to repaid by either a co-signor or by the estate.

In community property states, all assets and liabilities acquired during a marriage are considered to be owned by both spouses. This is true even if the spouse did not co-own, co-sign, or hold joint account status. In these states, joint ownership is automatically presumed by law. Also in community property states, the surviving spouse is responsible for student loan debt if it was incurred during the marriage.

Community property states include:

  • Arizona
  • California
  • Idaho
  • Louisiana
  • Nevada
  • New Mexico
  • Texas
  • Washington
  • Wisconsin

If you own a practice or are a partner

If you’re also a business owner, you need to consider the impact your death would have on your employees and/or partners.

If you pass away, your term life insurance policy can help in a number of ways. It can help pay off business debts. The money can be used to recruit somebody to buy or take over the practice. It can also cover any applicable estate taxes.

If you have partners, life insurance benefits paid to them can help them buy your shares of the business from your estate. This is known as a buy/sell agreement. It stipulates that on the death of a partner, the remaining partners can buy out the surviving family’s share at a previously agreed price.

How much does life insurance cost?

For many physicians, term life insurance can be purchased at an affordable rate.

Estimates show that the average 20-year term policy costs $23 a month for a 30-year-old non-smoker. It increases to $26 at age 35, $35 at age 40 and $57 at age 45. Smokers can expect to pay more than double those rates.

In general, premium rates charged by insurers are based on three factors:

  1. Mortality rates. Life insurance involves dividing risk among a large group of people. Insurance companies use mortality tables to estimate how much money it will pay in death claims each year. Premium rates are set based on those estimates for each class of insureds.
  2. Interest earnings. Insurance companies invest the premiums paid by policy owners in bonds, real estate and other assets. They base premium rates in part on the anticipated interest from those invested funds.
  3. Company expenses. Like other businesses, insurance companies have expenses. In addition to the typical operating costs, they also have to pay a commission to the agent who sold the policy. They also have to pay out claims when an insured dies. Premium rates are set to account for expenses while still enabling the company to make a profit.

In addition, your individual term premium rate will be based on:

  • Your age and gender. The older you are, the more you will pay. Also, because men have lower life expectancies than women, they will typically pay more for coverage.
  • How much coverage you elect. The higher your face amount, the more your premium will be.
  • The length of term you elect. The average annual cost for a 10-year term is between $500 and $600. For a 20-year term, it’s between $900 and $1,000. Thirty-year term policies will typically cost between $1,500 and $1,600 per year.
  • Underwriting factors. If you qualify for standard underwriting, you may pay around $2,000 a year for a 20-year, $500,000 term policy. If your health and other underwriting factors are better than average, you can qualify for preferred underwriting status. If so, your premium for a 20-year, $500,000 policy falls to $560 annually.

The life insurance buying process

There are a number of steps when buying life insurance. The entire process can take several months.

Comparison shopping for life insurance

Once you’ve made the decision to get life insurance, the first step is to comparison shop.

Dozens of companies offer life insurance. Policies have varying degrees of features. They can also vary in cost. Therefore, you should never limit your search to one policy or recommendation.

One way to compare policies is to obtain quotes from multiple insurers. (You can do this easily through LeverageRx.)

When you compare options, assess more than just cost. Survey all the various contract provisions, especially underwriting standards. Companies may underwrite the same person differently because they assess risk factors differently.

For example, some insurers will minimize the effect of high-risk hobbies on your underwriting. This is especially true if you have a license or certification and a certain amount of experience. Other companies will consider conditions like diabetes lower risk. Differences in underwriting ratings and optional riders can greatly impact the premium you pay.

Make sure the insurance company is a highly-rated, reputable firm.

Enlist the help of a licensed insurance professional

Doing this without professional help would be a daunting task for most people. It’s especially difficult for doctors with demanding careers. Therefore you should enlist the help of a licensed independent insurance agent.

Independent agents are contracted with multiple insurance companies. They can offer you multiple options. They can recommend options among different carriers for the best combination of price and features.

Instead of trying to find an agent on your own, ask a colleague or trusted advisor to recommend an insurance professional. A fellow doctor who had a positive experience with their agent should be happy to recommend them to you. Likewise if you trust the opinion of your banker, accountant or financial advisor, they may know a good agent as well.

The life insurance application process

Once you’ve decided on a policy, the next step is completing the application form. The form will be several pages. In addition to basic information, life insurance applications ask several health related questions. You will need to provide information such as conditions you have been diagnosed with, medications you are taking, and family health history.

You or your agent will submit the form along with supporting documentation. You will also have to authorize release of medical records.

Why it’s important to be truthful on your application

To address the potential for inaccuracies and outright fraud, life insurance contracts contain an incontestability clause and contestability period.

Incontestability clauses are designed to protect the person being insured. They prevent insurance companies from contesting a death benefit claim after a policy has been in force for a certain period of time.

The basis behind this clause dates to the early history of life insurance. Unscrupulous companies would often refuse to pay claims by accusing the insured of lying on the application after the insured died. Insurers would also use unintentional mistakes on the application as a basis for denying a benefit claim.

But life insurers still have some protection against fraud and misrepresentation. That’s why policies typically contain a contestability period.

What is the contestability period?

The provision gives the insurer the ability to investigate the insured’s death if it occurs within the first two years of the policy. If the insurance company finds deception on the application, it can potentially deny the death benefit claim.

But if the insurance company investigates and finds no wrongdoing, then it must pay your contractual death benefit.

Not all deaths within the contestability will be investigated. For example, an insurer likely won’t find any wrongdoing if the insured died in a car accident. But if the cause of death was a heart attack, the claims examiner might conduct more research to determine if the insured had heart disease and knew of the condition during the application process.

What happens if you lie on your application?

If the insurer does find that you obtained coverage based on false underwriting information, it may typically take one of two actions.

You may receive a lesser death benefit based on the amount of coverage you would have received had the insurer knew the truth.

For example, say you used tobacco for many years but neglected to put that in your application. As a “non-tobacco” user, you received coverage for a $100 monthly premium. Had the insurer known you used tobacco, it would have charged you $200 a month. You die during the contestability period and the insurance company discovers the discrepancy. The company could decide to pay you half your contracted benefit since you essentially paid half the premium you should have.

If the discrepancy was egregious or outright fraudulent, the insurance company can deny a death benefit claim and refund premiums paid.

Mistakes are treated differently

Many inaccuracies are due to an unintentional error. If insurers find these during the contestability period, the insurer may reduce the death benefit. But in many cases, an error will not effect the death benefit. This is true if the error had no relation to the cause of death.

The main thing to understand about contestability is that you should not, under any circumstances, knowingly lie on your life insurance application. You put your beneficiaries at risk of losing the death benefit if the insurer discovers the inaccuracies. Typically, a successful denial by the insurance company means that it only has to repay the premiums paid, not the contractual death benefit.

Even if you die after the contestability period expires, Some states allow the insurance company to still void the policy if deliberate life insurance fraud can be proven.

The vast majority of policies pay claims with little dispute or delay. Data from the National Association of Insurance Commissioners show that less than 1 percent of new death benefit claims are disputed by insurers.

The life insurance medical exam

Once the insurance company receives and reviews your application, they will order a medical exam. This is a key part of the underwriting process. It helps the insurance company assess your health risk. The exam can also uncover underlying medical conditions, such as diabetes or HIV, that will affect your qualification for coverage.

The insurance company will arrange the medical exam. In most cases, it can be conducted in your home. The exam takes about 20 to 30 minutes.

The exam includes a questionnaire filled out by a medical professional asking you a series of health questions. You will be asked about:

  • Health conditions you have
  • Medications you take
  • Past hospitalizations
  • Medical procedures you have had
  • Your family medical history
  • Lifestyle habits such as smoking, drinking and drug use

The examiner will also:

  • Measure and weigh you
  • Measure your blood pressure and pulse
  • Take blood work to check for cholesterol, glucose, protein and HIV
  • Take a urine sample to check certain levels as well as possible drug use

The insurance company will review the results to determine if you are insurable. The results are also used to set your premium rate. It could take up to a few months for this process to be completed.

Life insurance underwriting guidelines

Underwriting is the process of evaluating the risk posed by an insured. It determines whether an applicant qualifies for coverage. It also determines the amount of premium the policy owner will pay. If you pose a higher than normal risk of dying at an earlier age, the insurance company will charge more in premium. If you pose no such risks, your premium payments will be lower.

Underwriters will review your application, medical exam results and other information to assess your health risk. They will consider your:

  • Age. The younger you are, the more likely you are to live longer.
  • Gender. Women have a higher average life expectancy than men. Therefore, they will typically pay a smaller premium.
  • Height and weight. As a physician, you know the risks of obesity on a person’s health. Likewise, life insurance underwriters have guidelines for the optimal weight for men and women of certain heights. The more you deviate from these guidelines, the more risk you present.
  • Overall health. Minor ailments and chronic diseases will impact how you are underwritten. The more serious the condition, the more you’ll pay for coverage. In some cases, you may even be denied because of your health. Conditions that impact insurance rates include asthma, high blood pressure, and high cholesterol, as well as cancer, heart disease, diabetes, HIV/AIDS, and depression. To minimize the impact of health conditions, you need to demonstrate to underwriters that you are properly managing your health. That includes taking your medication if applicable, and following a physician’s recommendations.
  • Family history. The incidence of heart disease, cancer, and other diseases in your family carries greater underwriting risk. Insurance companies will assess how long members of your family lived with a condition to predict your life expectancy.
  • Smoker status. Life insurance companies use two sets of risk classes to assess premium rates, one for smokers and one for non-smokers. If you smoked for several years but have quit, you will likely be assigned smoker status. On the other hand, many insurers will make concessions for people who smoke occasional cigars.
  • Alcohol use. Similar to how smoking affects a person’s underwriting, an insurance company assesses the prevalence of alcohol. In addition to the health problems caused by alcohol abuse, regular alcohol use presents higher risk for accidental deaths.
  • Driving record. Insurers assess your driving record. They do so to determine if you carry a greater risk of being involved in a fatal car accident.
  • Hobbies. Applicants who participate in high-risk activities will likely pay a higher premium. Examples include flying aircraft, sky diving, rock climbing, race-car driving, and scuba diving.
  • Foreign travel. Some insurers consider frequent foreign travel a risk factor. How much of a risk will depend on where you travel and how much.
  • Employment. Jobs that are considered dangerous will affect a person’s life insurance underwriting. Physicians typically do not fall into this category.

How underwriters rate you

Based on these factors, the insurance company assigns you a risk rating. The most common rating is standard. A standard rating means the applicant carries an average amount of risk.

If you are young, in optimal health and/or carry few other risk factors, you may receive a select or preferred rating. This will result in paying less premium.

If you carry above average risk factors, you may receive what is called a table rating. Table ratings allow an insurer to further assess an applicant in accordance with their risk level and to provide coverage at an increased rate.

Tables ratings are usually letter grades from A to the whatever the lowest rating an insurer will consider. For example, an applicant that has a table rate of A will usually pay the standard rate plus an additional percentage.

Based on your risk assessment, you will receive an offer with a premium amount. If you accept the offer, the insurance company will issue your policy.

Different types of life insurance

One of the challenges of buying life insurance is deciding on which type to buy. Below is an overview of the main types of life insurance.

Term life insurance

Term life insurance is the most common and affordable type of policy. A term policy covers an insured for a specified period of time. Most terms are 10, 20 or 30 years. The shorter the term, the less you will pay in premium. Your premium amount will be the same for the entire term.

Another type of term insurance is annual renewable term (ART). This is a type of short-term policy where you have coverage for one year, with the option of renewing the policy annually.

The premiums for ART policy start out lower than comparable level term policies. But they increase over time.

If you pass away within the term of your policy, the insurance company will pay a death benefit. That death benefit is agreed upon at the time you apply for the policy. The higher the death benefit, the more premium you will pay for coverage.

If the term expires before your death, your coverage will terminate. You will have to decide whether to renew your life insurance. Doing so means going through underwriting. It also means paying a higher premium. That’s because you’ll be older and may have health conditions that present more risk to the insurance company.

Term life insurance is typically recommended for physicians, especially those in residency or just starting, over other types of life insurance. That’s because you can obtain a much higher death benefit at a much more affordable rate.

Whole life insurance

Whole life insurance is designed to provide coverage for the life of the insured. As long as the policy owner pays the required premium, the insured will always have life insurance coverage. Unlike term, there is no expiration on whole life insurance.

A whole life policy’s premium and death benefit typically remain the same for the life of the insurance contract.

Because it’s designed to provide lifelong coverage, whole life is considerably more expensive than term life insurance.

When you buy whole life, the insurer establishes a premium amount for the life of the policy. The amount is designed so that you pay more of the cost of insurance upfront. This enables the company to recoup as much of its expenses before you pass away or surrender the policy.

Each premium payment goes to pay fees and charges for providing the insurance. Anything extra is held in an account that earns interest. This extra amount becomes the policy’s cash value. The policy’s owner can access the cash value. This is done by either withdrawing part of the cash value or by surrendering the policy and taking the total accumulated cash value.

The main argument against whole life insurance is that it is considerably more expensive than a similar term policy. Because of its cost, many people surrender their whole life policies after a time and get little to nothing in return.

Also, you may not need life insurance coverage for your entire life. As many physicians reach or approach retirement, they owe little to nothing on their mortgages, and their grown children no longer depend on their income.

Whole life also isn’t the best option for people, like physicians, who have the ability to save a considerable amount of money over their lifetimes. If you save and invest well, you can accumulate enough assets to pass on to heirs without depending on life insurance.

Universal life insurance

Similar to whole life insurance, universal life (UL) is a type of permanent coverage that can cover an individual for his or her entire life.

Universal life is much more complicated and typically more expensive than whole life.

In a universal life policy, your premium payments support the amount of coverage you elect to own, also known as the face amount. Each premium payment is placed in the policy’s account value. From that account, the insurance company deducts fees and charges for providing the insurance. Whatever is left over is considered the policy’s cash value, which earns interest.

The amount of premium you pay and the death benefit you receive can vary from month to month and year to year. This is largely dictated by how much interest is credited to the policy.

If your policy earns excess interest, you accumulate more cash value. Over time, this can result in a higher death benefit. It can also reduce the amount of premium needed to keep the coverage active.

But if your policy does not earn enough interest to cover policy charges, you could lose your life insurance coverage. It’s not uncommon for policyholders to have to dramatically increase their premium payments to make up for the lack of interest their policies earned in their early years.

What makes universal life even more complex is that there are multiple ways a policy can earn interest:

  • Fixed UL credits interest based on a fixed interest rate. This rate is determined by the insurance company. It largely depends on the overall interest rate environment.
  • Variable UL policies allow the policyholder to invest in mutual fund like sub-accounts. The interest you earn will vary based on the performance of those investments. You would be taking a risk with your insurance coverage. If the investments decline in value, your cash value will decrease as well. This means you could be forced to increase your premium to make up for those losses or risk losing your life insurance coverage altogether.
  • Indexed UL is considered a hybrid of fixed and variable UL. It credits interest based on the upward movement of a market index, such as the S&P 500. But the policy’s cash value won’t decline if the index loses value. It just remains the same if there is a market loss. In exchange for offering downside protection, the insurer applies a cap to interest growth.

The upside of universal life is its flexibility. You can vary your premium payment from month to month. Plus, your death benefit can actually increase over time, depending on how much premium you pay and the interest the policy earns. There is also a cash value component you can access via withdraws and policy loans.

The downside is that UL is the most expensive type of life insurance. It is also the most complex to understand. There is also the risk of losing coverage or having to increase your premium if the policy doesn’t credit enough interest to pay fees and charges.

The risks of using life insurance as an investment

Many insurance companies and agents promote permanent cash value life insurance as an investment vehicle. You may be approached about using life insurance as a tax-advantaged way of saving money for retirement or other purposes.

These sales pitches may sound enticing. But keep in mind there are many disadvantages to this approach, including:

High expenses. Cash value life insurance has more fees and charges than other types of investments, including:

  • Sales charges that include the selling agent’s commissions.
  • Administration fees for maintaining the policy, including accounting and record keeping.
  • Mortality and expense risk charges. When a policy is issued, the insurance company assumes the insured person will live to a certain age. This charge compensates the insurance company in the case the insured person doesn’t live to the assumed age.
  • Cost of insurance. This is the cost of actually having insurance protection. It is based on the insured person’s age, gender, health and death benefit amount.

Slow accumulation. Many financial experts believe you should stick with a term policy. Then you can invest the difference between the cost of a term and a permanent policy. Doing so, they say, would generate a a greater rate of return than relying on permanent life insurance as an investment. Plus you would save on the cost of your life insurance.

Permanent life insurance does not accumulate cash value for several years. From an investment standpoint, this can make the overall rate of return much lower than a traditional account.

For example, if you make an initial premium payment of $10,000 for a cash value insurance policy, you won’t have $10,000 in cash value. That’s because most of the money you contribute early on is used to pay for the cost of the life insurance coverage. In fact, depending on how much you contribute, your cash value may be negative in the initial policy years.

On the other hand, an initial $10,000 investment in stocks, bonds, or mutual funds is worth that amount until the investment either grows or decreases in value.

Less flexibility. Traditional savings accounts also offer more flexibility than life insurance. A 401(k) or IRA enables you to start and stop contributions anytime. Whatever you have contributed continues to earn interest.

You don’t have that option for life insurance. To keep the policy going, you must continue paying the necessary premium. Otherwise it can lapse and you’ll lose the insurance coverage.

Also, it’s possible to lapse an insurance policy by withdrawing too much of the cash value. If this occurs, it could result in you owing taxes on the overdrawn amount.

Also keep in mind that money you remove from the policy will reduce your death benefit.

And whereas 401(k)s and IRAs allow you to deduct your contributions from your tax obligations, life insurance contributions have no such tax treatment.

Ultimately, you should use life insurance for its intended purpose: to provide for your family and loved ones in the event you pass away unexpectedly. For this purpose, term life insurance is appropriate.

Common life insurance policy riders

A rider on a life insurance policy is an optional feature. Riders are designed to provide added value to the policy. Some are offered at no cost. Many will require extra premium.

Common riders available on policies include:

Accelerated Benefit Rider. This feature lets you — or your beneficiaries — receive a portion of your contracted death benefit prior to your death if you are diagnosed with a terminal illness. You can use the money for medical care, hospice care or other needs.

Accidental Death Benefit Rider.  Accidental deaths are often the most unforeseen and therefore, the most disruptive to a family. Providing a larger death benefit in these cases can help your loved ones better cope with the sudden loss.

By attaching this rider to your policy, you can provide your beneficiaries an additional death benefit if your death is caused by an accident, as defined in the contract.

Additional Insured Rider. The rider is added to a policy when the insured wants to provide coverage to a second person. The most common use is to insure a spouse of the base policy insured.

Child Rider. Most people forgo life insurance coverage on children. A child’s death is unlikely. Plus, in the event a tragedy occurs, the financial loss is minimal. Still, it’s not a bad idea to have a small amount of coverage on your children. You can accomplish this with a child rider on your policy. The benefit can pay for funeral expenses and cover your lost income.

Disability Income Rider. It pays a monthly benefit to an insured person who suffers a disability that affects their ability to work and earn an income.

Guaranteed Purchase Option Rider. This feature enables you to purchase additional coverage at later dates. You can do so without filling out an application or going through underwriting.  The coverage is available regardless of whether your health status has changed. The rider is sometimes referred to as a Guaranteed Insurability Rider.

Depending on the carrier, you may be able to increase your death benefit at certain intervals, such as every five years. Some enable you to add coverage when you reach specific ages. Another common trigger for this rider is a special life event such as the birth of a child.

Return of Premium Rider. The rider will refund the money you paid in premium if the policy expires before you pass away. For example, if you purchased a 20-year term policy and kept it the entire 20 years, the insurance company would refund the premiums you paid, without interest. Some carriers include the rider at no extra cost. Others require an additional premium amount.

Waiver of Premium. This rider enables the insured to keep their life insurance coverage intact without paying premiums if they suffer a disability that affects their ability to earn a living.

Best physician life insurance companies

When you buy life insurance today, you’re planning for tomorrow. You’re counting on an insurance company to protect you and your beneficiaries.

That’s why it’s important to consider the financial strength and history of life insurance companies.

Rating agencies assess an insurer’s ability to meet its current and future obligations to policyholders. They base ratings on independent investigation of an insurer’s financial health.

Agencies assign letter grades. Higher letter grades — typically anything with an ‘A’ — indicate better financial performance.

A few of the agencies that rate insurance carriers and their top ratings include:

  • A.M. Best: A++, A+, A, A-
  • Moody’s: Aaa, Aa1, Aa2, Aa3, A1, A2, A3
  • Standard & Poor’s: AAA, AA+, AA, AA-, A+, A, A-

Below are leading life insurance carriers. These companies are considered appropriate for physicians and medical professionals. Each has a lengthy history. They carry strong ‘A’ financial ratings. You should verify which ones offer coverage in your state of residence.

Guardian

As of December 2018, Guardian was rated A++ by A.M. Best, the highest rating available. The company was founded in 1860. It offers term, whole, and universal life policies.

MassMutual

MassMutual was founded in 1851. As of December 2018, the company was rated AA+ by Standard & Poor’s, Aa2 by Moody’s, and A++ by A.M. Best. It offers term, whole, universal life and variable UL policies.

New York Life

New York Life was founded in 1845 and is rated A++ by A.M. Best. Term and whole life policies are available.

Principal

The Principal Financial Group was founded in 1879. As of July 2018, the company was rated A+ by Standard & Poor’s, A1 by Moody’s, and A+ by A.M. Best.

State Farm

State Farm has been in business since 1922. It offers term, whole, universal life and variable UL policies. The company carries an A++ rating from A.M. Best.

AXA

AXA’s roots date to 1859. The company is currently rated A by A.M. Best, A2 by Moody’s, and A+ by Standard & Poor’s. Its products include term, whole, universal, indexed UL and variable UL.

Banner Life Insurance Company underwrites and issues life insurance under the Legal & General America brand. Legal & General Group was founded in 1836. The company has an A+ rating from A.M. Best and AA- from Standard & Poor’s. Banner offers term and universal life policies.

Brighthouse

Brighthouse Financial carries term, universal life, indexed universal life, whole life, and variable universal life. As of December 2018, the company’s ratings are A+ from Standard & Poor’s, A from A.M. Best, and A3 from Moody’s.

John Hancock

John Hancock carries a variety of life insurance products and has an A+ rating from A.M. Best.

Lincoln Financial

Lincoln Financial was founded in 1905. As of September 2018, the Lincoln National Life Insurance Company’s A.M. Best rating was A+. Its Standard & Poor’s rating was AA- and its Moody’s rating was A1. The company offers term, universal and variable UL policies.

Mutual of Omaha

Mutual of Omaha was founded in 1909. As of December 2018, the company carried an A+ rating from A.M. Best. It has a Standard & Poor’s rating of AA- and a Moody’s rating of A1. Its policies include term, whole and universal.

Nationwide

Founded in 1925, Nationwide is rated A+ by A.M. Best. It also carries an A+ rating from Standard & Poor’s and A1 by Moody’s. The company offers term, whole, universal and variable universal life insurance.

Pacific Life

Pacific Life was founded in 1868. As of December 2018, the company was rated A+ by A.M. Best. It also carried an A1 rating from Moody’s and an AA- rating from Standard & Poor’s. Pacific Life offers term, universal life, indexed universal life, whole life, and variable universal life.

How to file a life insurance claim

One of the most important actions you can take when getting life insurance is to inform your beneficiaries. It’s difficult for them to claim a benefit if they don’t know a policy exists or which company issued the policy.

To file a claim for benefits, the most important information your beneficiary will need is a death certificate. This official document ensures that policies are being claimed legitimately and helps prevent fraud.

It’s also best if they have a copy of the actual policy. Therefore, you should store it in an accessible location and let your beneficiaries know where it is.

The beneficiary should begin by contacting the agent that sold the policy. If the agent can’t be located, then the beneficiary can contact the insurance company directly.

The insurance company will require completion of a claims form. The form will request information about the policyholder, including the cause of death. The form will also require beneficiary information, such as the his or her relationship with the deceased.

Once the insurance company has the necessary documents, they will process the claim. They will check to ensure the policy is still in force. They will also ensure the beneficiary claiming the death benefit is the person assigned in the policy. The claims process may take as long as 30 to 60 days.

Insurers often provide a few payment options. The typical option is to receive the entire death benefit is a lump sum. But you may also choose an annuity option. This means collecting the death benefit in a series of payments.

Although it doesn’t happen often, insurance companies may reject a claim for a few reasons:

The policy lapsed. This occurs if the policy owner stopped paying premiums. It could also result if the term ended on a term policy before the insured died.

There were misrepresentations on the policy application. Most life insurance policies have a contestability period. If the insurance company finds material misrepresentations on the application during this period, it can deny a claim. For example, if the insured’s age or health condition was not accurate on the application and the insurance company discovers this during the contestability period, a claim can be denied. Once this period expires, the insurance company has no legal recourse if it finds inaccurate application information. Contestability periods are typically the first two years from the date of issue.

The insured committed suicide. Insurance policies also typically have a suicide clause. This states that the insurance company will not pay out a death benefit if the insured commits suicide within the first two years of purchasing the policy.

Frequently asked questions about life insurance

As you can see by now, life insurance is a complicated subject. Here are six common questions we hear from doctors all the time.

1. How much life insurance should doctors have?

This is typically one of the first questions people ask when considering life insurance. It’s also one of the most difficult to answer.

What makes it so challenging are the unknown factors. You have to look into the future. That means forecasting what your life will be like in 5, 10, 15, and 20 years or more.

Methods for determining life insurance amount

There are a number of methods doctors can use to make the decision.

Some people base the decisions not on what they need, but on what they can afford. They determine how much monthly premium their current budget can handle. However much insurance that buys is what they’ll get.

Others choose a round number that “sounds” like an adequate amount of insurance. Some will opt for $500,000 in coverage. Others will buy a $1 million policy.

Another option is to buy a death benefit equal to 8 to 10 times your current income.

Conducting a life insurance needs analysis

It’s recommended that doctors, dentists and medical professionals work with a licensed insurance agent. Agents can help determine how much life insurance they need.

A good agent will help you understand how much insurance you need. This is done through a comprehensive needs analysis. This is a method (usually done with software) of exploring your current and future financial situation. It provides a clear picture of your insurance needs.

This needs analysis will be based on number of factors, including:

  • Current income
  • Projected future income
  • Funeral expenses
  • Current and projected debt
  • List of debts erased at death and ones that your estate must still repay
  • Investments and other assets
  • Number of dependents (today and possibly in the future)
  • The potential cost of financing children’s college education
  • Special needs of a spouse, child or other family member who depends on the insured’s income
  • Whether you own or are a partner in a medical practice

This analysis will help determine the overall cost of:

  • What your estate will have to pay for if you pass away unexpectedly.
  • What your dependents need to live on and for how long once they lose your income.
  • Special items, such as college funding, you hope to provide your surviving dependents.

With this information, your agent can make an educated recommendation. The goal is to meet the needs of your family and loved ones without overspending on unnecessary coverage.

2. What length of term life insurance should I get?

Another big decision to make is how long of a term you should purchase. This greatly affects how much premium you’ll pay.

When you buy term life insurance, your premium payment buys coverage to insure your life for a specified term. The most common terms are 10, 20 and 30 years. Some insurers offer terms in five-year increments.

The longer the term, the more you will pay in premium. That’s because the risk of death increases the longer you are covered.

Is 30-year term always the best option?

Some experts suggest buying 30-year term to receive maximum protection. This is especially true if you’re younger. If you’re starting out, chances are you will be working for at least the next 30 years.

You will lock in a premium rate for 30 years based on a low age and optimal health. You will continue paying that rate as you age and the potential for health issues increases.

The flip side of that argument is that you may not necessarily need term insurance for 30 years. You can always cancel a 30-year term policy after, say, 20 years. But you would have paid for 30 year coverage when you could have saved money by buying 20-year coverage.

Here are a few questions to help you determine a proper term length.

How long do you plan to keep working?

The primary purpose of term life insurance is to help replace the income lost if you die unexpectedly, to provide for your family or other dependents.

Therefore, one way to determine the optimal term is looking at how long you plan to work. Once you’re no longer earning a regular income, the need for term life insurance diminishes. If you only plan to work another 20 years, there may not be a need for a 30-year term policy.

What’s your family situation?

People often buy term insurance to provide for the needs of their family if they pass away.

Therefore, choosing the right term period means looking at your current family situation. You should determine how long they may depend on your income.

If you have a working spouse, the need may not seem as great. But keep in mind your lifestyle and expenses are likely based on both of your incomes.

Also, if you have a newborn child, your income is likely going to be needed to raise that child for at least 20 years, if not longer. Older children may not depend on you for near as long.

How much coverage can you afford now?

Once you’ve completed residency and started your practice, cost likely won’t be a concern. But if you’re still in medical school or completing your residency, you may not have the money for a 30-year term policy.

Since having some coverage is better than none, you may have to elect a 10-year policy and get more coverage once you’re established in practice.

3. Do I need an individual policy if I have group coverage?

Physicians can often get group life insurance through their employers or professional associations.

Group life coverage is typically cheaper than an individual policy. It’s also easier to obtain because it does not require underwriting.

Participating in a group life insurance plan is a good way to supplement your coverage at a reasonable cost. But you should also own an individual policy to ensure that you have adequate coverage.

Below are three reasons why you should not rely solely on group life insurance:

Your death benefit probably won’t be enough. Group plans are not meant to fulfill all of your insurance needs. They are designed to provide a worthwhile benefit, either to employees or group members.

Group life insurance policies are guaranteed issue. This means anybody who signs up and pays the premium can get coverage. There is no underwriting. Insurers don’t want to take on the risk of providing $1 million policies to people they have not underwritten for risk. Therefore, group policy death benefits are typically capped.

The maximum is usually a base amount for all participants, such as $100,000. Employer policies often limit you to a maximum based on your salary (e.g. 3x your current income).

Depending on the needs of your surviving family, your life insurance may need to be 10 times to 15 times your current income.

So while your group plan can supplement your coverage, it likely will not fully cover you.

You don’t have additional features. Individual life insurance policies offer built-in and optional features that can enhance your coverage. There are riders that can accelerate your death benefit in the event you become terminally ill, offer the ability to add coverage at later dates, or provide benefits in the event you become disabled.

Most group plans do not offer the many choices of riders provided by individual plans.

You could lose your coverage. Life insurance issued through a group plan is contingent on being employed by the company or a member of the organization sponsoring the plan. If that changes, you lose your coverage.

There is also usually an annual renewal process for group plans. There is no guarantee that the employer, organization or the insurance company will renew the group coverage. At any time, your rates can increase under group insurance.

Individual life policies cannot be changed as long as you own the policy and pay the premium. This includes the premium amount and death benefit. The insurer cannot cancel the policy as long as you pay your premiums.

4. Do I need life insurance if I’m still a resident?

Reasons against getting life insurance as a resident include:

  • You may not be able to afford it on a resident’s salary. This is especially true when you add in student loan payments.
  • If you’re not married and don’t have children, you probably don’t have anybody depending on your income. This makes life insurance less necessary.
  • As a resident, you may not own any assets. Your only debt may be student loans, which may be forgivable at death. Therefore, there’s less of a need for life insurance to help with debt repayment and asset transfer.
  • If you’re covered by a group life insurance play, you may have enough coverage at this stage of life.

Reasons why you may need term life as a resident:

On the other hand, there are legitimate arguments for buying individual life insurance as a resident:

It will never be more affordable than it is now. One of the underwriting factors that determines the cost of life insurance is age. The younger you are, the less you will spend on coverage.

You can’t fully control your future underwriting status. You may be perfectly healthy now. But what happens if you wait to buy term and are diagnosed with cancer or other disease? These ailments will add to the cost of life insurance later. They may even prevent you from qualifying for coverage.

You shouldn’t rely solely on group coverage. A group policy is better than nothing. But it’s also contingent on your employment or association membership. It can often be cancelled at anytime. You can keep your individual policy as long as you pay the premiums.

Your life should be insured for other reasons. Even if you die without dependents, there will likely be expenses related to your funeral and settling your estate. A term life insurance policy can make sure those costs can be covered without burdening parents or other relatives.

Speaking of parents, many medical professionals plan to use some of their wealth to care for their parents once they reach a certain age. If you’re no longer able to provide that support due an untimely death, will your parents have the resources to pay for long-term care or other needs?

Some people also neglect the need for life insurance because they have a spouse with a successful career who they believe can live comfortably on their own. But keep in mind that a widowed spouse may need significant time off work to grieve.

You may not have an immediate need based on your current income and dependent status. But chances are you will have a higher income, more assets, a mortgage, and people depending on your income in five or 10 years.

5. Do I need life insurance when I retire?

The main purpose of life insurance is to replace lost income of the deceased. It’s to provide for your family and loved ones after you’re gone. So what if you’re a retiree who no longer works and no longer has dependents? Do you still need life insurance?

The answer depends on your circumstances. Reasons you may want to own life insurance in retirements include:

You still earn outside income. Any income your dependents would lose because of your death should be covered by life insurance. If you’re living strictly on retirement plan assets, you may not need life insurance. When you die, your family will continue to receive payouts from your retirement accounts.

You have debt. Life insurance can help your surviving spouse pay off medical debt, the mortgage or other obligations.

Your survivors may have medical bills and funeral costs to pay. Funerals can cost between $7,000 and $10,000 or more. It’s common to incur medical expenses prior to death. Instead of your survivors paying these expenses out of your retirement accounts, life insurance can cover those costs.

You still have dependents. Many people in retirement still have people depending on them. You may be raising grandchildren. Perhaps you have a special needs child. Life insurance is a great way to continue providing for family members who are still depending on you.

You have assets with tax liabilities. Many inherited assets have income tax liabilities. These include traditional IRAs and tax-deferred annuities. Or perhaps you have an estate that will be subject to federal or state estate taxes. If so, your heirs can potentially use life insurance proceeds to cover the tax bills. This preserves more of the inherited assets for your heirs.

Your policy has an accelerated benefit rider. If you have this feature, a portion of the policy’s death benefit can be accessed if you become terminally ill or confined to a nursing home. This benefit can help pay those expenses.

You want to support a favorite charity. If you no longer have dependents of your life insurance, you may want to hold onto it to gift the proceeds to a nonprofit organization. You can change the beneficiary to a charity of your choice.

6. Can I buy term life insurance without an agent?

Just as you can buy almost any product online, so too can you now purchase life insurance. Many companies sell term life insurance directly to consumers. You apply online with the company and go through underwriting, including a medical exam and blood work.

If you qualify, the company will offer you a policy for a certain amount of premium. You can choose to accept it and be issued the policy. Or you can turn it down and start the process over with another carrier.

Although it’s possible to get term life insurance without the help of an agent, physicians need to ask themselves whether they should go this route?

Here are three considerations:

Will buying direct save you money? Insurance companies do not discount the cost of policies sold direct. They will charge the same amount of premium whether a policy is sold through an agent or online.

That’s because the cost of life insurance is based on rate tables established by the insurer. These tables are calculated based on the risk involved in insuring groups of people. These rate tables are filed with state insurance departments. Legally, insurers can’t offer a policy at a discount, even if they sell it online and don’t have to pay an agent’s commission.

However, you might save money working with an independent agent. An agent working with your best interest will compare multiple policies to find you the best deal.

Do you have time to research companies? One of the benefits of working with an independent agent is you can shop around with several carriers.

An independent agent is typically contracted with multiple carriers. They have no obligation to any of them. Therefore, they can put their clients’ interests first.

A qualified independent insurance agent has the knowledge and expertise to understand the complexities of the life insurance market. They can advise their physician clients on the appropriate amount of insurance coverage needed.

Do you have time to navigate the application process? Another advantage of using an agent to buy term life insurance is the support you receive during the application process.

Applications can take several weeks, whether you buy direct or use an agent. There can be multiple follow ups, scheduling of exams, and a lot of time potentially on the phone with an insurance company. An agent and his or her staff will take care of all these details. They will follow up with the insurer if there are any delays.

What’s more, if you can’t get the right coverage at the right price with one company, the agent can simply take your paperwork and submit it to another carrier. If you buy direct and this happens, you have to start the process all over.

Key life insurance terms to know

  • Amendment: A formal document that corrects or revises an insurance policy after it’s been issued. It becomes part of the legal insurance contract. A common amendment occurs when an insurance company is purchased by another. The amendment informs existing policy owners that the acquiring company is legally responsible for policy benefits.
  • Annuitize: This is one of the ways beneficiaries can receive a death benefit. It entails a series of payments rather than a lump sum.
  • Applicant: The person or entity applying for insurance. In most cases, this will be the same as the policy owner and/or insured, but not always.
  • Assignment: The transfer of the policy’s ownership rights from one person or entity to another.
  • Attending Physician’s Statement (APS): Information provided by a proposed insured’s physician covering medical history and results of medical examinations. It is used to determine the appropriate underwriting classification for the proposed insured.
  • Backdating: Insurance companies often allow you to make the effective date of the policy earlier than the application date as a way to make the insured “younger.” This can result in a more favorable premium. You can typically backdate a policy six months.
  • Beneficiary: The person(s) or entity(s) who will receive the policy’s death benefit. The beneficiary is named in the policy as the death benefit recipient upon the death of the insured.
  • Cash value: Whole life and universal life insurance policies can build cash value. The policy owner can access this account through withdrawals, loans, or policy surrender.
  • Claim: Notification to an insurance company that payment of the benefit is due under the terms of the policy.
  • Collateral assignment: Pledging a life insurance policy or its value as security for the repayment of a loan.
  • Commission: A fee or percentage of premium paid to the agent who sells the policy.
  • Contestability period: If the insurance company finds material misrepresentations on the application during this period, it can deny a claim. For example, if the insured’s age or health condition was not accurate on the application and the insurance company discovers this during the contestability period, a claim can be denied. Once this period expires, the insurance company has no legal recourse if it finds inaccurate application information. Contestability periods are typically the first two years from the date of issue.
  • Contingent beneficiary: A person(s) or entity(s) who receives the death benefit if the primary beneficiary is deceased at the time benefits become payable. Also known as a secondary beneficiary.
  • Cost of insurance: These are monthly charges usually associated with universal life. They include mortality, administration and other expenses incurred by the life insurance company.  The amount is determined by the risk class and age of the policyholder. Cost of insurance charges are deducted from premium payments. Whatever is left over is credited to the policy’s cash value.
  • Death benefit: The amount of money paid to the policy’s beneficiary(s). The benefit is paid upon the death of the insured.
  • Effective date: The date a life insurance policy goes into effect. Also known as the policy date or issue date.
  • Face amount: The amount of coverage applied for.
  • Free-look period: Once a policy has been issued, you can legally cancel it without penalty and with a full refund of any paid premiums if done inside the free-look period. Each state has a minimum free-look period, ranging from 10 to 30 days after policy delivery. Some insurers offer free looks above the state minimum.
  • Guaranteed issue: A policy that does not require medical underwriting or insurability. This is most common with group life insurance policies.
  • Incontestability clause: Provision that states after the policy has been in force for a specified period of time, the insurance company cannot deny a claim based on a material misrepresentation made in the application. The typical period of time for the clause is two years.
  • Insurable interest: A policy owner and beneficiaries must have insurance interest. That means they would suffer a potential financial loss in the event the insured dies.
  • Insured: The individual whose life is covered by the life insurance policy. The death of the insured will trigger the payment of the death benefit.
  • Irrevocable beneficiary: A beneficiary designation that cannot be changed without the written consent of the beneficiary.
  • Lapse: Policy termination due to non-payment of premium.
  • Level premium: A premium amount that remains the same throughout the life of the policy.
  • Material misrepresentation: A statement made by an applicant or proposed insured in the policy’s application that is not factually correct. Examples may include wrong age or omissions on the health questionnaire.
  • Mutual insurance company: An insurance company owned by its policy owners. Net earnings and savings of the company are distributed to the policy owners in the form of dividends.
  • Policy loan: Whole life and universal life insurance policies allow you to borrow from the cash value. Policy loans are generally repaid with interest. Until repaid, a policy loan will reduce the policy’s death benefit.
  • Policy owner: The person or entity that owns the policy. The owner maintains contractual rights of the policy. For example, they can determine the beneficiary and whether to cancel the policy. In many cases, the policy owner is the same as the insured.
  • Premium: The amount of money required to be paid to the insurance company to provide coverage.
  • Rating class: The insurance company’s underwriting guidelines will place an insured in a category based on the amount of risk. Rating classes determine the premium amount required. Insureds may be classified as standard risk, substandard, preferred, or other terms.
  • Renewable term insurance: Term life insurance that may be renewed for another term without evidence of insurability.
  • Stock insurance company: An insurance company owned by stock holders.
  • Surrender: Canceling a life insurance contract.
  • Term conversion: This is a provision that enables a term life insurance policy owner to convert the contract to a permanent policy, such as whole life. The conversion provides the same amount of coverage without additional underwriting
  • Underwriting: The process of evaluating the risk posed by an insured. Underwriting determines whether an applicant qualifies for coverage. It also determines the amount of premium the policy owner will pay.

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